Analysts’ estimates for 2016 for this trucking company have risen $0.16 per share in the past 90 days, based on synergies and growth from its latest acquisition.
Forward Air (FWRD)
from The Periscope Report
Updated from Investment Digest 741, April 24, 2013
Forward Air (FWRD) is a trucking company. FWRD picks up packages from air freight forwarders (almost 90% of business), then sends them by truck to terminals near their destinations. FWRD has a network of freight terminals located on or near airports in 89 U.S. and Canadian cities, and 11 regional sort centers that create the most effective line-haul network in the industry.
The guidance for the 1Q of 2015 was revenues of $214 million, up from $181 million last year. Earnings were expected in the range of $0.54 - $0.56 per share, compared to $0.50 last year. FWRD badly missed its top and bottom line guidance, but we predicted the miss due to a recent acquisition of its largest competitor. Actual revenues came in at $206 million and net earnings were $0.40 per share. (Research Note: The 1Q is seasonally the weakest of the year.)
Management is anticipating a much stronger 2Q, with revenue growth in the range of 27% - 31%, and net earnings will be in the range of $0.59 - $0.63 per share, up from $0.55 per share a year ago, and obviously a huge sequential increase.
On the conference call, CEO Bruce Campbell spent most of his time talking about the acquisition and integration of Towne Air Freight, the company’s largest competitor. This acquisition solidifies FWRD’s market dominance and presents high barriers to entry. FWRD paid $125 million for Towne and total integration costs will be $50 million taken over a span of three quarters.
With Towne, FWRD now has 40% - 45% market share making it by far the largest company in the space, and barriers to entry are high (Research Note: FWRD’s market dominance was the main reason we recommended the company, so the acquisition reinforces our bullish stance). In 2014, Towne had unaudited revenues of $230 million, and adjusted EBITDA of $7 million. There are substantial synergies, so Towne will be accretive to earnings in 2015. Management expects a partial year benefit in the range of $0.16 - $0.18 per share for 2015.
For 2015, management expects revenues, inclusive of Towne, to increase between 26% - 28%. Excluding the Towne deal costs, management expects net income to be in a range of $2.26 - $2.50 per share for 2015. With the stock at $53, it is trading for about 22 times management’s guidance.
Despite the weak quarter, the stock soared after the conference call due to the bullish comments regarding the Towne acquisition, which will be accretive to earnings in 2015 and improve margins in 2016. Keep buying this market dominator.
Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Canyon Ferry Crossing, Helena, MT 59602, 406-465-4663, May 2015